VEU Vs. VXUS: A Comparison of Two ETFs

This post compares two ETFs, VEU vs. VXUS, and outlines the pros and cons of both. It’s another great post written by Marjolein at Radical Fire. Tim

What is a good investment strategy? If you want to diversify your investments, what assets should you consider? Let’s check VEU vs. VXUS and see which one is a better fit for your investment needs.

There are certain advantages of Vanguard funds that make them attractive to investors. One of these is that they usually operate at cost while all the profits made from the fund management are distributed again into the fund. Another great reason to choose the Vanguard fund is that it has no third-party investors who run the company. Instead, the entity is collectively owned by all investors.

Two of the international ex-US ETFs that Vanguard issues are VEU and VXUS. While the former tracks the FTSE All-World ex-US Index, VXUS tracks the FTSE Global All Cap ex-US Index. Both offer great exposure to the international market outside the United States. They try to accomplish an almost similar goal. They also have almost similar returns. However, they have some differences.

So, which of the two is better? How do they compare and contrast? Let’s find out in this VEU vs. VXUS review.

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VEU: Vanguard FTSE All-World ex-US ETF

Vanguard FTSE All-World ex-US ETF (VEU) was established in 2007 and seeks to track the FTSE All-World ex-US Index. The goal of this index is to perform in the same way as the international stock markets. However, the index only has 3,400 companies.

It’s also considered a sufficient agent for the whole international stock market outside the United States. The Exchange-Traded Fund (ETF) has assets worth over $35 billion.

VXUS: Vanguard Total International Stock Index Fund ETF

Launched in 2011, the Vanguard Total International Stock Index Fund ETF (VXUS) seeks to track the performance of the FTSE Global All Cap ex-US Index, which calculates the returns on investment of the stocks that are issued by the company that is domiciled outside the US.

This index is created to enable it to track the performance of the equity market in developed and emerging markets. Therefore, it provides a bigger exposure in the developed as well as emerging non-US equity markets.

VEU Vs. VXUS: Key Differences

Here’s a summary of the differences between VEU and VXUS.

Fund Followed

The indexes followed by these two funds might seem similar. However, this is not the case. VXUS follows the Global All Cap ex-US Index. This is a FTSE Global Index subset. There is no other fund that uses this index.

On the other hand, the FTSE All-World ex-US Index is only followed by VEU. That means no fund tracks the whole FTSE Global Index. Therefore, both of these indexes are usually a subset of one index.

Stock Composition

VXUS has a small percentage of small-capitalization stocks, while VEU excludes them completely. This means that essentially VEU is part of VXUS.

When it comes to the popularity level, VXUS is more popular than VEU.

Fund Size

The size of the fund is a good indicator of the confidence that investors have in a fund. Both of these funds can be categorized as large funds. While this isn’t an indication of how good a fund is, it’s one of the key considerations that investors should make.

Fund Diversification

VXUS manages assets worth over $390 billion and ranks in the top 50 biggest ETFs in the world. It consists of over 7,500 securities of companies from all over the world. VEU, on the other hand, manages assets worth over $36.7 billion and has over 3,500 securities. Therefore, VXUS can be considered to be more diversified than VEU.

When you consider that VEU has been in existence for 14 years, VXUS is also catching up pretty fast. One of the reasons for this is its high number of holdings. In general, a more diversified fund has a lower risk, and investors understand that.

Other differences between the two ETFs are:

Name	VEU	VXUS
Date of inception	03/02/07	01/26/11
Assets Under Management	$35.34B	$51.97B
Holdings	3,589	7,707

VEU Vs. VXUS: Composition Differences

VXUS consists of 3,557 international small-cap stocks. This is an indication that VEU is a subset of VXUS. In other words, VXUS features all the 2,857 stocks that are in VEU and another 3,557 small-cap stocks.

One thing worth noting is that VXUS is market-cap weighted, and therefore, more than 3,500 small stocks are only part of the entire fund. However, the composition of the fund has a slight difference.

Close to 75% of the VXUS’ holdings consist of large-cap companies. This is usually followed by the mid-stock funds that consist of 20% of the fund. The other 5% to 6% consist of small-cap companies. While the large-cap stocks are similar to the whole US stock market, the mid-capitalization stocks have a bigger share.

About a quarter of the VXUS securities are in emerging markets, which translates to about 23.5% of the fund. The allocations are in North American countries such as Mexico and Canada, Middle Eastern Countries, and more. However, the greatest allocation is in Europe with about 40%, while the Asia-Pacific region accounts for 28.9%.

VEU is a bit different. It holds a smaller number of stocks because it is made of international mid and large-cap stocks. On the other hand, VXUS consists of 6,414 stocks of large-cap, mid-cap, and small-cap international stocks. The two ETFs have small differences in sector weighting, stock geographical distribution, and fundamentals.

The investments by sectors are as follows:

Sector	VXUS	VEU
Basic materials	7.26%	7.26%
Communication	8.25%	8.25%
Consumer cyclical	10.57%	10.57%
Consumer defensive	10.54%	10.54%
Energy	5.22%	5.22%
Financial services	18.74%	18.74%
Healthcare	11.05%	11.05%
Industrials	11.91%	11.91%
Real Estate	3.08%	3.08%
Technology	10.37%	10.37%
Utilities	3.52%	3.52%

The top 10 holdings by individual companies are as follows:

VXUS	%	VEU	%
Taiwan Semiconductor Co. Ltd.	1.57%	Nestle SA	1.28%
Nestle SA	1.14%	Tencent Holdings Ltd.	1.26%
Tencent Holdings Ltd.	1.12%	ASML Holdings NV	1.11%
ASML Holdings NV	0.99%	Taiwan Semiconductor Co. Ltd.	1.01%
Alibaba	0.90%	Alibaba	1.01%
Samsung Electronics Co.Ltd.	0.86%	Roche Holding Ltd.	0.93%
Roche Holding Ltd.	0.82%	Taiwan Semiconductor Co. Ltd. ADR	0.80%
Toyota Motor Corp.	0.67%	Toyota Motor Corp.	0.80%
LVMH Moet Hennessy Louis Vuitton SE	0.60%	LVMH Moet Hennessy Louis Vuitton SE	0.68%
Novartis AG	0.60%	Novartis AG	0.67%

VEU Vs. VXUS: Performance Differences

One of the key considerations that investors make when choosing a fund is on the returns of investment. One of the similarities between VEU and VXUS is that their returns are very similar. However, VXUS has slightly better returns but has higher volatility based on its past performance.

This can be attributed to the fact that VXUS has small-capitalization stocks that have higher returns in the long run with higher volatility levels than the mid-cap and the large-cap stocks. As an investor, you need to consider if you are ready to withstand more volatility in exchange for higher returns.

The performance of the two can be categorized in this table:

	1 month	3 months	YTD	3 Years	5 Years	10 years
VEU	-2.11%	0.17%	8.33%	8.37%	10.2%	5.76%
VXUS	-1.84%	0.09%	9.02%	8.36%	10.14%	5.76%

From the above performance, VXUS outperforms VEU modestly. However, certain factors may hinder investors from choosing it.

VEU Vs. VXUS: Fees

Both VEU and VXUS have an expense ratio of 0.08%. That means that for an investment of $10,000, investors pay a fee of $8 every year as management expenses. This is very cheap for the international exposure funds that can be broad.

The minimum investment of each fund is usually the price of one share. Therefore, currently, you need at least $61 to acquire one VEU share and $64 to acquire one VXUS share.

VEU Vs. VXUS: Volatility

Both funds have almost similar volatility. This is about 4% monthly and 14% annually. However, VXUS has a slightly higher maximum drawdown at about -25.54% while VEU has a maximum drawdown of -24.27%. The drawdowns give us a clear picture of how it affects our portfolio.

VEU Vs. VXUS: Which One Should You Choose?

As we have already seen, both funds are categorized as international stocks large blend funds. This means that you only need to invest in one and not both. When using tax-loss harvesting, both funds are a great choice. Traders and investors usually choose which one they include in their portfolios.

Since both VEU and VXUS have similar fees, most investors prefer VXUS, which is more liquid and provides investors with a bigger return on investment. This is because it includes small-cap stocks.

Since it’s more suitable for a diversified and comprehensive portfolio, VXUS is a good choice for investors who are searching for growth in the long term.

In the end, choosing one over the other depends on your investment strategies and risk-adjusted appetite. You don’t want to lose money, right? So, hedge your funds appropriately, considering how volatile markets can be.

Since you already know the pros and cons of these asset classes, you are able to come to an educated decision on which one suits your investment objective. Investing in funds is important to build up your income or retirement savings, so make the right and informed choice!